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Taiwan Makes Moves Against Hot Money

by Mary Swire, Tax-News.com, Hong Kong

15 November 2010


Taiwan is making further moves to try and counteract the effect of the inflows of foreign speculative funds, or ‘hot money’, into the country which are suspected to be made for currency speculation, rather than for long-term investment purposes.

Taiwan’s parliamentary financial committee has, in a resolution, asked the Ministry of Finance to arrange with the Financial Supervisory Commission (FSC) and the central bank the provisions of legislation to be introduced for the imposition of management fees on hot money arriving in the country and not invested for long-term purposes.

While details have still to be agreed, the fees would be collected by the country’s banks and transferred to the government as tax revenue. One proposal was that the banks should levy the fees on all foreign capital invested with them, but there was still some discussion on what funds constitute hot money.

The FSC has also announced that it has re-imposed, with effect from November 11, the regulation that places a cap on government bond purchases by overseas investors at 30% of their funds, regardless of the bonds’ maturity dates. At present, the cap applies only to those government bonds with a maturity of less than one year.

This new measure was said to have been requested by the central bank, following increased capital inflows which are said to be causing volatility in both the country’s capital and foreign exchange markets. Foreign investors who have already exceeded the cap will be permitted to maintain their investments, but will not be able to make further government bond purchases until they fall within the cap through the occurrence of maturities.

The FSC has said that it has seen that foreign investors have placed more than half of their Taiwanese investments in government bonds with a maturity greater than one year, while it is reported that foreign holdings of government bonds rocketed to TWD240bn (USD8bn) in September this year, from only TWD30bn at the beginning of last year.

A comprehensive report in our Intelligence Report series giving a country-by-country analysis of offshore investment funds, stock exchanges and trusts, with an analysis of the US QI regime, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp
TAGS: tax | investment | law | banking | capital markets | Taiwan | fees | offshore | legislation | currency | regulation

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